Exhibit 99.1
Hub International Posts Strong Growth for the
Second Quarter & First Half of 2003
CHICAGO--(BUSINESS WIRE)--July 31, 2003--
Highlights:
-- Revenue increases 29% for second quarter, 34% YTD
-- Organic growth reaches 13% in quarter, 14% YTD
-- Diluted EPS totals $0.31 for quarter, $0.59 YTD
-- Earnings guidance updated to $1.13-$1.18 from $1.08-$1.17
-- Company files shelf registration of up to $140 million in
securities
Hub International Limited (NYSE:HBG) (TSX:HBG), a leading North
American insurance broker, today reported strong growth in the second
quarter and first half of 2003, leading the company to update its
earnings guidance for the full year. All financials are reported in
U.S. dollars.
"The underlying performance of our brokerages was strong in the
second quarter and the first half," said Martin P. Hughes, Chairman
and Chief Executive Officer. "We attained respectable levels of
organic growth and maintained our focus on expense management. As a
result, we are updating our earnings guidance to a range of
$1.13-$1.18 per diluted share from our previous guidance of
$1.08-$1.17 per diluted share."
Revenue increased 29% to $74.1 million in the second quarter ended
June 30, 2003, due to acquisitions and an organic growth rate of 13%.
Net earnings declined to $10.1 million from $10.7 million, while
diluted earnings per share declined to $0.31 from $0.41.
Notwithstanding the impact of a 22% increase in the weighted average
number of diluted shares for the quarter and adjusting for the
following items, net earnings before tax increased 78%, net earnings
increased 73% and diluted earnings per share increased 29%, as
compared to 2002:
1. The second quarter of 2002 included the sale of two insurance
subsidiaries, which created a one-time non-taxable gain of $2.6
million.
2. Revenue timing shifts led to $2.1 million of contingent
commissions being received by Hub in the second quarter of 2002,
while similar payments were received in the first quarter of
2003.
3. $1.3 million of non-cash stock based compensation was recognized
in the second quarter of 2003, versus no expense recognition in
the same period of 2002.
Adjusting for the factors described above, net earnings before
tax, net earnings and diluted earnings per share in the second quarter
of 2002 would have been as follows:
Net Earnings
Before Tax Net Earnings Diluted
(000's) (000's) EPS
------------ ------------ -------
Second quarter 2002 - As reported $14,776 $10,712 $0.41
Sale of two insurance subsidiaries (2,612) (2,612) (0.09)
Revenue timing shifts - contingent
commissions (2,100) (1,399) (0.05)
Non-cash stock based compensation (1,300) (866) (0.03)
------------ ------------ -------
Second quarter 2002 - Pro forma $8,764 $5,835 $0.24
============ ============ =======
Second quarter 2003 - As reported $15,625 $10,109 $0.31
============ ============ =======
2003 increase ($) $6,861 $4,274 $0.07
============ ============ =======
2003 increase (%) 78% 73% 29%
============ ============ =======
As well, diluted earnings per share improved by $0.01 for the
second quarter of 2003 due to the strengthening of the Canadian
dollar.
Second quarter revenue growth resulted from both market
penetration and the strengthening of the Canadian dollar. Excluding
the impact of acquisitions, organic growth--the equivalent of
same-store sales--was a solid 13%. The increased strength of the
Canadian dollar accounted for approximately $3.0 million, or five
percentage points, of Hub's 29% revenue increase and $2.9 million, or
five percentage points, of Hub's 13% organic growth rate for the
period. Absent that currency effect, Hub would have posted 24% revenue
growth and an 8% organic growth rate for the second quarter.
Core commission income grew 33% in the second quarter of 2003 to
$69.4 million from $52.1 million, reflecting an organic growth rate of
16%, or 11% excluding currency effects. Contingent commissions and
volume overrides, which are additional payments made by insurers on
the basis of business volume and profitability, declined by 12% for
the second quarter of 2003, due to the previously described shift in
revenue timing, but increased 62% for the first half of 2003.
U.S. revenue increased 33% to $44.7 million from $33.6 million,
including organic growth of 6%. Organic growth included both a 9% rise
in core commission income and a 12% decline in contingent commissions
and volume overrides. The decline in contingent commissions and volume
overrides resulted from the previously discussed shift in revenue
timing.
Canadian revenue grew 24% to $29.5 million from $23.7 million,
including organic growth of 23%. A stronger Canadian dollar was
responsible for 12 percentage points of both total revenue growth and
organic growth of Canadian operations. Canadian organic growth
included 25% core commission growth and a 26% decline in contingent
commissions and volume overrides. As was the case in the United
States, the decline in contingent commissions and volume overrides
reflected the shift in revenue timing described earlier.
Compensation increased as a percentage of revenue from 52% to 54%.
The increase resulted from the shift in revenue timing and normal
quarterly variations in revenue mix. For the first half, the
percentage of compensation to total revenue of 54% was unchanged from
a year earlier. At the same time, selling, occupancy and
administration costs declined to 19% of revenue from 20%, largely as a
result of cost control in a rising revenue environment.
Hub's net earnings before tax grew 6% to $15.6 million from $14.8
million, as pre-tax margin (net earnings before tax divided by
revenue) narrowed to 21% from an unusually strong 26% in 2002. The
decline in pre-tax margin resulted from the expensing of non-cash
stock based compensation in 2003 and the impact of the gain on the
sale of the two insurance subsidiaries in 2002. The company's tax rate
increased to 35% from an unusually low 28%, as a result of the $2.6
million non-taxable gain on the sale of the two insurance subsidiaries
in 2002. As a result, net earnings decreased $0.6 million to $10.1
million from $10.7 million, yielding a net margin of 14%, down from
19% a year earlier. Diluted earnings per share fell 24% to $0.31 from
$0.41. The weighted average number of diluted shares increased 22% to
33.9 million from 27.9 million, reflecting the impact of Hub's June
2002 initial public offering in the United States, use of stock in
acquisitions and issuance of shares for non-cash stock based
compensation.
First Half Results Offer More Normalized Perspective
For the six months ended June 30, 2003, Hub reported revenue of
$143.0 million, up 34% from $106.8 million a year earlier. The growth
included the impact of acquisitions and organic growth, bolstered by
the strength of the Canadian dollar. Of the 34% revenue increase,
approximately four percentage points resulted from a stronger Canadian
dollar. The same currency translation contributed approximately four
percentage points to Hub's 14% organic growth rate for the first half
which reflected both the 13% growth of core commission income and a
32% increase in contingent commissions and volume overrides.
"Growth of contingent commissions and volume overrides during the
first half is a reflection of our ability to deliver an increasingly
large and profitable book of business to high-quality insurers,"
Hughes said. "In turn, we increase our importance to these insurers
and expand our access to coverage on behalf of clients. In a hard
insurance market, access is a critical competitive advantage, one that
we emphasize continually in our strategies."
In the United States, revenue increased 41% to $90.0 million from
$63.7 million a year earlier, reflecting acquisitions and an organic
growth rate of 9%. U.S. revenue increased to 63% of Hub's total
revenue from 60% a year earlier reflecting the more rapid pace of
acquisitions in the United States. Organic growth included both a 7%
rise in core commission income and a 40% increase in contingent
commissions and volume overrides.
In Canada, revenue increased 23% to $53.1 million from $43.1
million, including an organic growth rate of 22%. A stronger Canadian
dollar added 10 percentage points to overall revenue growth and
organic growth of Canadian operations. Canadian organic growth
included 22% core commission growth and an 18% increase in contingent
commissions and volume overrides.
Compensation increased in line with revenue during the first half,
totaling 54% of total revenue for both the 2003 and 2002 periods.
Similar to results for the second quarter of 2003, selling, occupancy
and administration expenses declined to 19% of revenue in 2003 from
21% in 2002.
Net earnings before tax increased 37% to $29.9 million from $21.8
million, more than compensating for the previously described impact of
the gain on the sale of the two insurance subsidiaries and the
expensing of non-cash stock based compensation. The effective tax rate
grew to 36% from 28% in 2002, as a result of the non-taxable gain on
the sale of the two insurance subsidiaries.
Net earnings increased $3.3 million, or 21%, to $19.0 million from
$15.7 million a year earlier, including a relative reduction of $3.5
million, or $0.12 per diluted share, due to the gain on the sale of
the two insurance subsidiaries and expensing of non-cash stock based
compensation. Excluding those items, net earnings increased 65%.
Diluted earnings per share declined to $0.59 from $0.63, reflecting a
22% increase in weighted average diluted shares to 33.6 million from
27.6 million. Excluding the items described above, earnings per
diluted share would have increased 23%. The increase in weighted
average shares reflected the company's initial public offering in the
United States in June 2002, use of stock in acquisitions and issuance
of shares for non-cash stock based compensation.
Outlook and Guidance Updated
Based on first-half results and management's outlook for the
remainder of the year, Hub updated its guidance for 2003 diluted
earnings per share to a range of $1.13-$1.18 from previous guidance of
$1.08-$1.17.
Shelf Registration to Add Financial Capacity, Flexibility
Hub recently filed a shelf registration statement for an offering
of up to $140 million in equity and/or debt securities, with a goal of
increasing the company's flexibility and capacity in two key areas:
1. To expand capacity for potential acquisitions.
2. To accommodate orderly and non-disruptive sales of insider
shares as they are released from escrow. Hub employees,
including members of the executive committee, own
approximately 28% of Hub's outstanding shares. The shelf
registration anticipates the potential sale of approximately 2
million shares, which would be less than 22% of employee
holdings.
Hughes cautioned that the filing of a registration statement does
not indicate that an offering or insider sales are anticipated in any
specific time frame. He stressed that the shelf registration is a
means to maximize financial flexibility in a number of possible
circumstances.
"We are a company that focuses on acquisitions as a major source
of growth, which makes ready access to capital markets a competitive
advantage," Hughes said. "In addition, we use common shares, escrowed
for up to ten years, as a primary currency for larger, hub
acquisitions. As a portion of those shares are released from escrow in
any given year, their holders might consider sales as a means of
diversifying their personal portfolios. Hub's goal is to minimize the
impact of such sales on the overall stability of the market for Hub
common shares, for the benefit of all shareholders."
Employee Equity Incentive Plan Awards
On June 30, 2003, Hub awarded 609,803 restricted share units
("RSUs") in satisfaction of previously disclosed agreements to issue
restricted shares and RSUs to certain employees relating primarily to
commitments made in connection with prior acquisitions. The RSUs
represent the right to receive an award of Hub common shares on a
deferred basis, subject to vesting over periods ranging from 68 to 95
months, without payment of cash consideration. A portion of this
issuance of awards included the grant of an aggregate of 49,130 RSUs
to Martin Hughes, Chairman and Chief Executive Officer, and W. Kirk
James, Vice President, General Counsel and Secretary. In exchange,
both officers have agreed to sell the common shares they currently own
under Hub's Executive Share Purchase Plan (an aggregate of 48,648
common shares) and Hub will receive the proceeds of the sale after
payment of applicable individual capital gain taxes. Although Hub will
receive the after-tax proceeds, the transactions will be reported as
insider sales.
Company Schedules Conference Call and Webcast
The company will discuss second quarter results and updated
guidance on a conference call scheduled for 9:30 a.m. (CDT), 10:30
a.m. (EDT) on Thursday, July 31, 2003. The call may be accessed via
the internet by logging onto www.hubinternational.com and will be
available for replay for 90 days on Hub's website,
www.hubinternational.com. Participants can access the teleconference
by calling 800.299.8538, passcode 258889.
Headquartered in Chicago, IL, Hub International is a leading North
American insurance brokerage that provides a broad array of property
and casualty, life and health, employee benefits, investment and risk
management products and services through offices located in the United
States and Canada.
This press release may contain forward-looking statements which
reflect our current views with respect to future events and financial
performance. These forward-looking statements relate, among other
things, to our plans and objectives for future operations and are
subject to uncertainties and other factors that could cause actual
results to differ materially from such statements. These uncertainties
and other factors include, but are not limited to, risks associated
with implementing our business strategies, identifying and
consummating acquisitions, integrating acquired brokerages, attaining
greater market share, developing and implementing effective
information technology systems, recruiting and retaining qualified
employees, fluctuations in the premiums charged by insurance companies
with corresponding fluctuations in our premium-based revenue, any loss
of services of key executives, industry consolidation, increased
competition in the industry, fluctuations in the demand for insurance
products and the passage of new legislation subjecting our business to
regulation in jurisdictions where we operate. We caution readers not
to place undue reliance on these forward-looking statements, which
speak only as of the date of this press release. Additional
information regarding these risks and other factors that could cause
Hub International's actual results to differ materially from our
expectations is contained in the company's filings with the Securities
and Exchange Commission. Except as otherwise required by federal
securities laws, Hub International undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
FINANCIAL TABLES:
HUB INTERNATIONAL LIMITED
Consolidated Organic Growth
For the three and six months ended June 30, 2003
(in thousands of U.S. dollars, except percentages)
Net Adjustment
Revenue for
------------------ Total (Acquisitions) Organic
Second quarter Total Growth and Growth
2003 2002 Change ($) (%) Disposals (%)
--------- -------- ---------- ------ ------------- -------
Total
- ------------
Commission
Income $69,442 $52,140 $17,302 33% $(9,050) 16%
Contingent
Commissions
and
Volume
Overrides 2,889 3,273 (384) -12% (144) -16%
Other Income 1,824 1,883 (59) -3% (116) -9%
----------------------------------------------------------
Total $74,155 $57,296 $16,859 29% $(9,310) 13%
----------------------------------------------------------
USA
- ------------
Commission
Income $41,307 $29,892 $11,415 38% $(8,661) 9%
Contingent
Commissions
and
Volume
Overrides 2,195 2,341 (146) -6% (144) -12%
Other Income 1,170 1,362 (192) -14% (116) -22%
----------------------------------------------------------
Total $44,672 $33,595 $11,077 33% $(8,921) 6%
----------------------------------------------------------
Canada
- ------------
Commission
Income $28,135 $22,248 $5,887 27% $(389) 25%
Contingent
Commissions
and
Volume
Overrides 694 932 (238) -26% - -26%
Other Income 654 521 133 25% - 25%
----------------------------------------------------------
Total $29,483 $23,701 $5,782 24% $(389) 23%
----------------------------------------------------------
Net Adjustment
Revenue for
------------------ Total (Acquisitions) Organic
First six months Total Growth and Growth
2003 2002 Change ($) (%) Disposals (%)
--------- -------- ---------- ------ ------------- -------
Total
- ------------
Commission
Income $123,957 $93,550 $30,407 33% $(18,256) 13%
Contingent
Commissions
and
Volume
Overrides 15,253 9,431 5,822 62% (2,844) 32%
Other Income 3,822 3,799 23 1% (255) -6%
----------------------------------------------------------
Total $143,032 $106,780 $36,252 34% $(21,355) 14%
----------------------------------------------------------
USA
- ------------
Commission
Income $76,267 $54,935 $21,332 39% $(17,644) 7%
Contingent
Commissions
and
Volume
Overrides 10,982 5,889 5,093 87% (2,766) 40%
Other Income 2,702 2,875 (173) -6% (259) -15%
----------------------------------------------------------
Total $89,951 $63,699 $26,252 41% $(20,669) 9%
----------------------------------------------------------
Canada
- ------------
Commission
Income $47,690 38,615 $9,075 24% $(612) 22%
Contingent
Commissions
and
Volume
Overrides 4,271 3,542 729 21% (78) 18%
Other Income 1,120 924 196 21% 4 22%
----------------------------------------------------------
Total $53,081 $43,081 $10,000 23% $(686) 22%
----------------------------------------------------------
HUB INTERNATIONAL LIMITED
Consolidated Statements of Earnings
For the three and six months ended June 30, 2003 and 2002
(in thousands of U.S. dollars, except per share amounts)
Second quarter First six months
2003 2002 2003 2002
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue
Commission income $69,442 $52,140 $123,957 $93,550
Contingent
commissions and
volume overrides 2,889 3,273 15,253 9,431
Other 1,824 1,883 3,822 3,799
----------- ----------- ----------- -----------
74,155 57,296 143,032 106,780
----------- ----------- ----------- -----------
Expenses
Compensation 39,884 29,824 76,903 57,514
Selling, occupancy
and administration 13,801 11,394 26,900 22,254
Depreciation 1,517 1,354 2,911 2,634
Interest expense 1,516 2,404 2,883 5,098
Intangible asset
amortization 756 379 1,557 758
(Gain) loss on
disposal of
property, equipment
and other assets 65 (2,530) 9 (2,572)
(Gain) on put option
liability (267) (305) (240) (678)
Non-cash stock based
compensation 1,258 - 2,220 -
----------- ----------- ----------- -----------
58,530 42,520 113,143 85,008
----------- ----------- ----------- -----------
Net earnings before
income taxes 15,625 14,776 29,889 21,772
----------- ----------- ----------- -----------
Provision for income
tax expense
Current 3,604 3,233 9,265 6,014
Future 1,912 831 1,611 107
----------- ----------- ----------- -----------
5,516 4,064 10,876 6,121
----------- ----------- ----------- -----------
Net earnings 10,109 10,712 19,013 15,651
Interest on
subordinated
convertible debentures 472 799 943 1,603
Cash in lieu of
dividends on
restricted units 40 - 40 -
----------- ----------- ----------- -----------
Diluted net earnings $10,621 $11,511 $19,996 $17,254
=========== =========== =========== ===========
Earnings per share
Basic $0.34 $0.53 $0.65 $0.79
Diluted $0.31 $0.41 $0.59 $0.63
Weighted average shares
outstanding
- Basic (000's) 29,326 20,195 29,326 19,846
Weighted average shares
outstanding
- Diluted (000's) 33,930 27,919 33,632 27,598
HUB INTERNATIONAL LIMITED
Consolidated Balance Sheets
As of June 30, 2003 and December 31, 2002
(in thousands of U.S. dollars)
2003 2002
----------- ---------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $63,078 $40,642
Trust cash 44,081 53,648
Accounts and other receivables 154,058 136,567
Income taxes receivable 4,918 2,153
Future income taxes 3,526 3,324
Prepaid expenses 2,189 1,587
----------- ---------
Total current assets 271,850 237,921
Goodwill 298,130 281,727
Other intangible assets 43,266 44,164
Property and equipment 22,110 21,298
Future income taxes 5,398 3,715
Other assets 7,585 8,051
----------- ---------
Total assets $648,339 $596,876
=========== =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $196,875 $187,034
Contingent consideration payable - 8,423
Income taxes payable 1,235 1,198
Future income taxes 1,897 1,164
Current portion long-term debt and capital leases 2,957 3,029
----------- ---------
Total current liabilities 202,964 200,848
Long-term debt and capital leases 83,475 69,009
Subordinated convertible debentures 35,000 35,000
Future income taxes 9,932 7,745
----------- ---------
Total liabilities 331,371 312,602
----------- ---------
Commitments and Contingencies
Shareholders' equity
Share capital 246,863 235,197
Contingently issuable shares - 13,743
Contributed surplus 3,497 1,234
Cumulative translation account 18,718 2,185
Retained earnings 47,890 31,915
----------- ---------
Total shareholders' equity 316,968 284,274
----------- ---------
Total liabilities and shareholders' equity $648,339 $596,876
=========== =========
HUB INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2003 and 2002
(in thousands of U.S. dollars)
Second quarter First six months
2003 2002 2003 2002
----------- ---------- ----------- -----------
(unaudited) (unaudited)(unaudited) (unaudited)
Operating activities
Net earnings $10,109 $10,712 $19,013 $15,651
Items not affecting
working capital:
Amortization and
depreciation 2,273 1,733 4,468 3,392
(Gain) loss on
disposal of
property,
equipment and other
assets 65 (2,530) 9 (2,572)
(Gain) on put option
liability (267) (305) (240) (678)
Non-cash stock based
compensation 1,258 - 2,220 -
Future income taxes 1,912 831 1,611 107
Non-cash working
capital items
Trust cash (6,154) (3,818) 9,567 5,664
Accounts and other
receivables (48,036) (44,045) (10,069) (20,219)
Prepaid expenses 800 777 (489) 313
Accounts payable and
accrued liabilities 55,105 43,855 4,277 (1,235)
Other assets (2,420) - (2,320) -
Income taxes (4,662) (1,013) (2,844) (771)
----------- ----------- ----------- -----------
Net cash flows from
(used for) operating
activities 9,983 6,197 25,203 (348)
----------- ----------- ----------- -----------
Investing activities
Property and equipment
- purchases (1,458) (910) (3,036) (1,691)
Property and equipment
- proceeds on sale 20 - 27 -
Proceeds from
investment held for
sale - 43,521 - 43,521
Purchase of
subsidiaries, net of
cash received (1,161) (993) (12,385) (993)
Sale of subsidiaries 160 719 451 1,687
Other assets (705) 185 (721) 22
----------- ----------- ----------- -----------
Net cash flows from
(used for) investing
activities (3,144) 42,522 (15,664) 42,546
----------- ----------- ----------- -----------
Financing activities
Bank debt - (55,000) - (55,000)
Long-term debt -
advances 65,000 - 65,000 -
Long-term debt and
capital leases -
repayments (50,597) (68,168) (51,313) (70,100)
Share capital -
issued for cash, net
of issue costs - 88,091 (32) 88,091
Dividends paid (3,038) (1,950) (3,038) (1,950)
----------- ----------- ----------- -----------
Net cash flows from
(used for) financing
activities 11,365 (37,027) 10,617 (38,959)
----------- ----------- ----------- -----------
Effect of exchange rate
changes on cash and
cash equivalents 1,651 - 2,280 -
----------- ----------- ----------- -----------
Change in cash and cash
equivalents 19,855 11,692 22,436 3,239
Cash and cash
equivalents - Beginning
of period 43,223 18,526 40,642 26,979
----------- ----------- ----------- -----------
Cash and cash
equivalents - End of
period $63,078 $30,218 $63,078 $30,218
=========== =========== =========== ===========
CONTACT: Hub International Limited
Media Contact:
Dennis J. Pauls, 312-279-4880
dpauls@hubinternational.com
or
Rosenbaum Advisors
Investor Contact:
Michael Rosenbaum, 847-749-1010
michael@rosenbaumadvisors.com